Last updated on May 6th, 2021 at 08:48 am
An effective organization has, among others, an efficient procurement process at the core. An optimized procurement strategy has a positive domino effect throughout the organization, leading to an improved bottom line.
For example, an optimized procurement process adds more visibility to the process and reduces time spent discussing each contract’s details. The information on particular contracts is readily available to team members and stakeholders. This adds a significant business value.
The procurement process touches every facet of the organization and impacts revenue directly. Optimizing this function ensures that everything is running smoothly.
Why Procurement Optimization is Important
Every organization’s goal is to maximize profit potential, and the procurement process is at the center of it all. The incoming resources need to be converted into sellable products in the most efficient way to reduce wastage and minimize costs. But how do you achieve this?
By optimizing the procurement process.
No doubt, the most important reason for procurement optimization is cost savings. The organization can acquire contracts, services, and raw materials at the best possible price. There is better visibility into the budgets, and the business can renegotiate some of the contracts and take advantage of the discounts, more than often ignored.
An efficient procurement takes into account the discounts and warranties received to the benefit of the business.
How You Optimize the Procurement Process
● Training and Development
Hiring the brightest talent is a great start, but it can only take you so far.
A good training and development program ensures business continuity and should be part of every organization. It impacts the productivity and profitability of the organization and reinforces the goodwill of the business.
This translates to customer satisfaction and a sustainable competitive edge.
Training the procurement team familiarizes them with the latest tools and technologies to help them thrive in their work. They become more efficient and motivate them to grow in their roles.
Ideally, make training and development a continuous process to accommodate industry changes and the evolution of technology.
Unlike in the past, technology has brought about innovative training solutions to keep employees engaged when learning. There are now e-learning solutions to ensure employees are applying whatever they are learning.
● Focus on the Skills
Every organization should have good negotiators to ensure the company gets the best deal possible, thereby reducing costs. Good negotiation skills push for better contracts, improved discounts, and better prices for goods and services.
Some companies train their employees to be better negotiators or use procurement consulting as part of the main business strategy. Add financial analysts, data analysts, and statisticians to the procurement team. These people will help get your data in order, and you can then use predictive analysis to understand the data sets and make informed decisions.
Profitability is a numbers game, and those who get it right improve their efficiency and bottom line to maintain competitiveness and stay in business.
● Utilizing a Contract Management System
Outdated methodologies such as paper orders reduce efficiency, slow down the whole process and reduce the competitive edge.
Incorporating technology in the business process saves the enterprise a lot of time and makes it more efficient. Typically, adding a contract management system will significantly improve the procurement process.
Your firm works with hundreds and sometimes thousands of clients, and creating the contracts every time there’s a need is time-consuming. A contract management system smoothens the process when onboarding a new client or supplier. The system allows you to determine which contracts can be reused, and you can create a standard contract template.
Effective e-procurement allows easy monitoring of orders and creates a complete audit trail, usually through a three-pronged matching functionality. Purchase orders are matched with invoices and customer receipts, which contributes to efficient accounting and procurement. This has snowballing positive effects on the business.
● Good Vendor Relationships
Suppliers and vendors provide the goods and services that your business needs to go to the next level. But just because vendors are critical to the business does not mean you should accept all terms on offer.
Incorporate an effective vendor management system.
Good vendor management not only optimizes procurement but reduces the risks as well. For example, if a particular vendor is notorious for late shipments, you are better off switching to another.
Good partnerships with main suppliers have mutual benefits and pad the bottom line.
Traditionally, the focus has been on improving customer relationships to reduce costs. But it has now become clear that a good supplier relationship is as important. Effective supplier management has various outcomes: shorter order fulfillment times, responsiveness to market changes, increased return on investment, and a growing market share.
● Consumer-Focused Procurement
The needs and wants of consumers are essential to take into consideration. The consumer must be the wheel in the cog of all key functions and activities in the procurement process.
This approach makes sure products are designed according to the consumer’s needs, thereby retaining their loyalty. You should never force the customers to change their behavior to accommodate an internal process, as it is much easier for them to shift loyalties, which is not what you want.
Collaborate across the organization to involve more stakeholders in shaping the procurement process by focusing on the consumers. Create an environment where everyone, especially the customer-facing staff, is free to share their ideas and raise concerns. That way, new ideas can crop up, and they can be implemented right away.
Revamping the procurement process is not an overnight activity. It will take some time.
However, the benefits to the organization are numerous, and it makes the whole process worth it. An optimized procurement process increases the efficiency and profitability of the business.
To get the most out of the procurement process, the employees need training in the art of negotiation, making the most of a contract management system, and using the latest procurement tools and technologies. Make sure the right strategies are in place, and it is only then that you can then directly impact your competitive advantage.